After finding the home you want and making an offer, you'll wait to see whether the seller accepts. If the seller accepts your offer, the next step will be to review, negotiate, and sign a real estate contract. This document is legally binding once it is signed by both you and the seller, making it important for you to carefully review it before agreeing to move forward. Here's what you should know about real estate contracts from a real estate attorney in New Jersey at the Ziegler Law Group, LLC before you buy a home.
What Is a Real Estate Contract?
A contract is a legal agreement that is entered into by at least two parties. Contracts can be written or oral in some cases. However, under the New Jersey Statute of Frauds, contracts for real property must be in writing to be enforceable and valid.
A real estate contract in New Jersey is a binding agreement between the buyer and seller for the purchase of a home or another piece of real property. It includes the various terms of the sale, including the agreed-upon price, financing conditions, contingencies, and the closing date. It will also include the duties of both the buyer and seller, including the seller's responsibility to transfer a clear title and the buyer's duty to obtain financing.
Basics of Real Estate Contracts in NJ
New Jersey has standard contracts used by real estate agents. These contracts must meet basic requirements to be enforceable and valid. The real estate contract must identify both the buyer and seller, the property, the property's address and legal description, and the sales price.
Consideration from both parties must also be included since the real estate contract is a bilateral agreement. Consideration is something of value a party agrees to give in exchange for the deal. For example, the buyer's consideration might involve paying earnest money to show they are serious and intend to pay the full amount by obtaining a mortgage. The seller will give consideration by promising to stop listing the home and sell it to the buyer for the amount they agreed to in the contract.
Both parties must agree to all of the contract's terms. If they both have the legal capacity to enter into a contract, they can sign the agreement to make it legally binding.
What Elements Are Included in a Valid Real Estate Contract?
The following elements are required in New Jersey for a real estate contract to be legally valid and enforceable:
- It must state a legal purpose
- The parties must be legally competent (at least 18 and mentally competent)
- There must be an offer and acceptance
- There must be a consideration and mutual consent
Including a legal purpose means the contract must be written in a way that complies with the law. For example, a non-owner can't contract to sell a property. Competency means that each party has the legal capacity to enter into a contract. In New Jersey, a person is competent if they are at least 18 and are mentally sound.
There must be an offer and an acceptance for a contract to be formed. This can occur when a party tells the other they are willing to enter into the contract, and the contract itself is the offer. When the parties accept the contract without changing it, it is an agreement. In many cases, the parties might negotiate the terms of the contract before signing, and the modified agreement will be the contract instead of the earlier version. In real estate transactions, consideration occurs when the buyer gives a certain sum for the property, and the seller transfers the property's ownership in exchange. The buyer and seller consent to the contract by being willing to enter into it and accept its terms as written.
Types of New Jersey Real Estate Contracts
In New Jersey, there are three primary types of real estate contracts, including purchase contracts, leases, and real estate assignments. Purchase contracts are used to sell and buy a house or another property and are also called sales contracts. Lease agreements are contracts between an owner and tenant to give the tenant permission to use the property for a set period. Leases also include provisions about whether the tenant can make any changes to the property while they possess it. Real estate assignments are contracts that are typically used to flip houses for a profit. In those cases, the buyer has the right to assign ownership of the property to someone else at a future date for gain.
A buyer or seller can also give someone else the power to act on their behalf during a real estate transaction if the buyer or seller is unavailable. For example, a seller who will be out of the country for more than six months might sign a power of attorney to grant someone they trust the authority to sell the property for them through a power of attorney contract.
Common Terms in a Real Estate Contract in New Jersey
Real estate contracts help to enable the seller to sell a property and the buyer to purchase it. They are designed to protect both parties by including specific terms.
New Jersey real estate contracts typically include the following terms:
- Information about the parties, including the seller, buyer, and agent
- Description of the property, including the legal description and physical address
- The agreed-upon sales price
- Contingencies that have to be met before the transaction can be completed
- Disclosures required under the law
- Closing date, which is when the sale will be completed
- Signatures of the buyer, seller, and real estate agent
Other terms might also be necessary. A New Jersey real estate attorney should review a contract before you sign it.
What Contingencies Might Be Included?
Contingencies are conditions that the buyer or seller must meet before the sale can go through. For a buyer, a common contingency is obtaining financing. If the buyer can't obtain financing, this contingency allows the buyer to back out of the deal. A title contingency is a condition that the title search will reveal the title is clear and free from defects. If it isn't, the buyer should be able to back out without consequence.
Including a home inspection contingency is a good idea. The buyer can have the property inspected to ensure that there aren't any major issues with the structure or others, including mold, termites, radon, and other things that could cost thousands to fix. If a major issue is discovered during an inspection, the buyer can ask the seller for repairs or a lower sales price. If the seller is unwilling to make repairs to lower the price, the buyer can back out.
The financing contingency will give a specific time by which the buyer must secure a mortgage to buy the home. If they can't secure financing, the contract will be void. The seller can then re-list and sell the home to a different buyer. Finally, many buyers will negotiate the inclusion of a contingency to sell their home before closing. The buyer will have a set time to sell their home before closing on the new property and making the required payment.
Consult a NJ Real Estate Attorney
Buying a home is a major decision, and you shouldn't enter into a real estate contract without carefully reviewing its terms. An experienced real estate attorney in New Jersey can explain the terms and negotiate with the other party to protect your interests during and after the transaction. To learn more, contact the Ziegler Law Group, LLC today to schedule a consultation by calling (973) 533-1100.
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